Underlying Sales Growth Remains Solid
For the quarter,The Estée Lauder Companies reported net sales of$2.25 billion,a 4%increase compared with$2.17 billion reported in the prior-year quarter.Excluding the impact of foreign currency translation,net sales increased 5%.Estée Lauder reported net earnings for the quarter of$130.4 million,a 5%increase compared with$124.7 million last year.Diluted net earnings per common share rose 6%to$.33,compared with$.31 reported in the prior year.
Estée Lauder's performance was due to solid overall business,particularly from its largest brands.The Company reported sales gains in every region,including strong skin care growth within each region.Sales growth in other product categories in each region was mixed.
Fabrizio Freda,President and Chief Executive Officer Estée Lauder,said,"Our third quarter sales came in slightly ahead of our forecast and,importantly,we were able to leverage part of that growth into an overachievement of earnings per share.Driving our performance are focused investments on our distinctive product innovations,supported by strong creative capabilities and elevated high-touch services.These elements provide a foundation for continuous growth and,coupled with cost savings and productivity improvements,increased and sustainable profitability.On the strength of our brands,we posted across-the-board sales gains in our regions,strong skin care growth and increases in most channels,while further generating substantial gross margin improvements.
"Sales and operating income in the quarter were unfavorably impacted by shifts in orders in advance of our implementation of SAP in various geographic locations.Adjusting for these sales shifts and a returns charge,our current third quarter sales would have increased 9%in local currency,which speaks to the strength of our underlying business.We will continue to opportunistically invest behind our advertising and merchandising to further propel the momentum our businesses are enjoying.
Our outlook for the balance of the year remains positive,giving us the confidence that for the full fiscal year we will achieve double-digit local currency sales growth and the ability to raise our full-year earnings per share estimate,before restructuring charges,to$2.21 to$2.26."
Estée Lauder Skin Care results
The skin care category is a strategic priority for Estée Lauder.Skin care sales growth was strong,particularly in view of the 14%growth comparison in the prior-year period(2%of which related to the shift in sales orders).
The Estée Lauder brand had strong sales from the recent launches of Revitalizing Supreme Global Anti-Aging Creme,Idealist Even Skintone Illuminator and Idealist Cooling Eye Illuminator.Continued growth of Advanced Night Repair Synchronized Recovery Complex and the launch of the reformulated Resilience Lift and Nutritious Vita-Mineral lines of products also contributed incremental sales.
The recent launches of Repairwear Uplifting Firming Cream,Moisture Surge Intense and Turnaround Overnight Radiance Moisturizer from Clinique contributed strong incremental sales.Strong sales growth from various products from La Mer and Origins also contributed to the category's growth.
These sales gains were partially offset by lower sales from certain existing products.Operating income increased sharply,primarily reflecting improved results from higher-margin product launches from certain of the Estée Lauder's heritage brands,as well as from higher-end prestige skin care products.These improvements were partially offset by an increase in investment spending to support the Estée Lauder's heritage brands.
Estée Lauder Makeup results
Makeup net sales decreased less than 1%.Makeup sales were up against a tough comparison to the prior-year period when the category grew 24%(3%of which related to the shift in sales orders).Strong growth was generated from M•A•C,primarily reflecting new product offerings.Higher makeup sales also reflected the recent launches of Invisible Fluid Makeup from Estée Lauder and Quickliner For Eyes Intense from Clinique.Lower sales from certain existing products partially offset these sales gains.
In the current-year period,the Estée Lauder established a provision for anticipated returns of approximately$16 million as a result of repositioning certain products due to changes in regulations related to sunscreen products in the United States.This provision reduced makeup sales growth by approximately 2%.
Higher sales from Smashbox and the introduction of the Tom Ford Beauty line of cosmetics contributed to the category's growth.
Makeup operating income decreased,primarily reflecting the provision for anticipated returns and the write-off of inventory of approximately$17 million as mentioned above,as well as an increase in investment spending to support the Estée Lauder's makeup artist brands and certain heritage brands.
Estée Lauder Fragrance results
Fragrance sales decreased less than 1%,with sales gains in Europe being more than offset by declines in Asia/Pacific.Fragrance sales in the prior-year period grew 4%(3%of which related to the shift in sales orders).
Notable increases were generated from the recent launches of pureDKNY Verbena,DKNY Golden Delicious and Estée Lauder Sensuous Nude.Higher fragrance sales from the Tom Ford and Jo Malone luxury brands also contributed incremental sales.
These increases were offset by lower sales of certain Estée Lauder and designer fragrances.Fragrance operating loss widened,primarily reflecting lower profitability from Estée Lauder fragrances,partially offset by higher results from the Estée Lauder's designer fragrances,particularly in Western Europe.
Estée Lauder Hair Care financial results
Hair care net sales increased less than 1%.Hair care sales were up against a tough comparison to the prior-year period when the category grew 14%(2%of which related to the shift in sales orders).Higher sales from Aveda reflected new product introductions,including the recent successful launch of its Invati line of products,as well as from expanded distribution.
Bumble and bumble sales declined,primarily due to the anniversary of the rollout of its expanded retail and salon distribution in the prior-year period.Sales declines at Ojon were due,in part,to softness of its business in the direct response television channel.
Hair care operating results increased over 100%,primarily reflecting a favorable comparison to the prior-year period when the Estée Lauder recorded impairment charges related to the Ojon brand of approximately$33 million.
